Debt Elimination Tips: How To Reduce Debt With These Dos and Don’ts

Here are my own concrete debt elimination tips and thoughts on how to reduce debt. I’ve learned from my mistakes, so I hope these ideas help you avoid the debt trap.

In the mid- to late-’90’s, I made accumulating credit card debt something of a hobby. It wasn’t exactly a conscious decision, but every time I handed over that piece of plastic with my name smartly engraved upon it, I was further destroying my financial future.

To make a very long story short, by the end of 1998 I had nearly $25,000 in debt and not a darn thing to show for it. After getting tired of my situation, I eventually buckled down and, in 2000, got a second job in a last ditch effort to get my life back in order.

Now that I’ve got a few years distance between me and those old mistakes, I can offer a few tips on how to, and how not to go about eliminating debt.

My Debt Elimination Tips: Do’s and Don’ts On How To Reduce Debt

DO: Review your credit score on a regular basis.

One of the first things you can do to get a handle on your debt is to find out how your credit situation looks to your creditors. While you can get this information from various sources, most lenders and creditors are interested in your FICO credit score (which is considered the “standard” in the credit industry). You may find what you need with Equifax credit score and report products.

DON’T: Damage your credit.

Avoid doing things to ruin your credit such as forgetting to pay your bills on time or at all! If you close your credit card accounts or apply to too many loans, you may be in danger of negatively affecting your credit, so be aware of how you’re managing your existing loans.

DON’T: Add to your debt load recklessly.

If you’re in financially hot water, don’t add to your troubles by applying for additional loans. The only time you should seek new loans is if these can be used for debt consolidation or as part of a strategy to lower the payments you are already making.

DO: Build a lean budget and stick to it.

Don’t let the “b” word scare you. Budgets are actually pretty easy to put together and to maintain. All it takes is a little upfront organization and a few minutes every week for updates. Don’t know where to start? Perhaps this list of budgeting tools can help.

Or you can check out YNAB (or You Need A Budget), which is a highly rated money management and budgeting software product that runs on most computer platforms. You can read our review on YNAB (You Need A Budget) personal budget software for more details. A standalone product like this or Quicken should provide you with iron-clad security since they don’t run on the internet, an advantage they have over free online money management sites.

DON’T: Keep spending the way you have in the past.

Clearly, the same old same old is not going to work here. Your spending habits are likely what got you into debt in the first place. Changes must occur if you are serious about getting your finances back on track. Sure, those weekday morning lattes from Dunkin’ Donuts may feel like a necessity, but what’s worse? A few days of caffeine detox, or drinking away $700 or more that could be put toward your debt each year? Look at all of the little luxuries in this light and you may quickly find your priorities shifting. I’m not saying that you need to deprive yourself of everything that makes you happy but, rather, that you should try to find things that make you happy that are less expensive or, even better, free.

DO: Have an emergency fund.

Even if it’s just $500, an emergency fund is crucial to the process of debt elimination. Many perfectly good budgets have fallen apart due to unexpected vehicle repairs, veterinary expenses, bail, etc. Make sure that you park the equivalent of at least six months’ worth of expenses into a high interest savings account.

And remember that an emergency is an EMERGENCY. A great sweater on sale at J. Crew is not an emergency, no matter how you try to justify it.

DON’T: Look for an easy way out.

Bankruptcy is an extreme option and shouldn’t be a consideration unless you are under extreme circumstances. I also don’t recommend trying to grow your money through the lottery or gambling. There’s a good chance that you will need to put some effort into getting out of debt, but that’s really ok. It’ll put hair on your chest.

DO: Strategize.

I screwed up and paid things in the order of the collection phone calls that came, which meant that I ultimately paid more and for longer than was really necessary. The better strategy is to pay the minimum on every account, then funnel any extra money toward the account with the highest interest rate until it is paid off. See if you can take discretionary income and extra savings you’ve got each month to add to the minimum payments of your highest interest rate debt accounts. This strategy will ensure that you pay the least amount possible in interest.

DON’T: Procrastinate.

I hope you can learn from my mistake: putting off debt elimination will do nothing but make life stressful and ruin your credit. Credit already ruined? Ouch. But the longer you wait to rectify the situation, the longer your credit will remain bad. The sooner you pay off those accounts, the sooner they will age off of your report, and the sooner you can move on with your life.

DO: Find ways to increase your income while cutting down costs at the same time.

If you’ve cut as much of your budget as you can, then see if increasing your income is a feasible exercise. You can explore getting a second job or running a part time business. Keep your eyes open to possible opportunities that arise and don’t be afraid to take a risk! Remember that without risk, there’s no reward.

I’ll add another one, when you make your plan stick to it. So many people start off great then fall back into bad habits.

Doctor SDecember 15, 2008 at 11:43 am

Finding an additional source of income is huge… but it is also the most difficult. It is tough to concentrate on ever aspect, if you can do well in a few you can see major differences. Right on w/ everything, especially the lean budget, emphasis on the word LEAN!

ElroyDecember 15, 2008 at 11:01 pm

Cut on expenses, use less, car pool, buy what you need, these are the only ways out of the mess that we are in.

JasonDecember 17, 2008 at 3:33 pm

Just read about this post on Frugal Dad – some great advice that I couldn’t agree more with. I’ve only recently come to the same “what the heck am I doing?” realisation that you had years ago, so I’ve got a long way to go. But we’ll get there 🙂

SimplyFortiesJanuary 6, 2009 at 12:00 pm

What a great list. The thing I would add is Do involve your family (unless of course you’re single). Making debt reduction a team effort really helps!

debtmavenJanuary 7, 2009 at 11:06 pm

Great summation! It really brings all the different facets of debt reduction into play. Sure, there’s lots more than can be said, but sometimes, the simpler, less detailed comments can have the best results, especially for those just starting out. Kudos!

AnnJanuary 13, 2009 at 2:12 pm

To get out of debt you also need motivation and discipline and definetely a system. Some people claim they can eliminate their debt without paying for services or software, they say they can get the information for free. But the fact is that you have to be knowledgeable about what information found in the internet is correct and which one is not since you can get into deeper trouble if you follow the wrong information..

SefaMarch 4, 2009 at 10:04 pm

Very helpful articles! Thanks.

PhilApril 2, 2009 at 8:07 pm

Fantastic organization. The flow was easy and the contrast between the pros and cons kept it entertaining, yet informative!

DaveJune 5, 2009 at 1:58 pm

A comment was made about paying the highest interest rate card first. That’s great for people who don’t need extra encouragement to stick with the plan. A better option for those needing an extra push is to pay off cards in order of balances, smallest to largest, regardless of interest rates. As you pay off cards, continually roll the balances into the next card on the list. As you pay each card off you’ll feel like you are making progress conquering your debt and you’ll work harder on the next one. Keep the ball rolling. The $$ loss due to interest rate differences is minor and you’ll feel like you are accomplishing something and you’ll keep going. Remember, don’t add to the cards, just subtract! It worked for us!

Kevin ThatcherJune 15, 2009 at 11:32 am

This is a great simple list of Do’s and Don’ts on eliminating your debt. Setting up a lean budget is the easy part but I think the most challenging part of getting rid of debt is sticking by the regulated lifestyle you set for yourself. While it is important to change your spending habits and live frugally, one should not opt for an immediate change in lifestyle. The key is make a gradual transition in order to keep up with the change.

AnnJuly 1, 2009 at 3:50 pm

The long trial out of debt is not quick nor it’s going to be easy. The situation you’ll have found yourself in will have been years in the making and the solution will take a similar length of time. Be it months or years, it can be an awfully long time before you see the light at the end of the tunnel.

TomSeptember 13, 2009 at 12:21 pm

Great tips. I liked the tip about budgeting. Everyone who is facing a problem with debt must have to understand that they are ruining their lives by not solving this problem. By reading your article, a large number of people are going to benefit. Appreciate the helpful tips.

EsyJanuary 21, 2010 at 8:17 pm

Good list of dos and don’ts. There are really two points to remember in reducing your debt: can your spending and increase your income.

Handy list! You’ve made some fantastic pointers there on spending – especially the emphasis on reviewing your credit score on a regular basis. There are so many people who are unable to purchases homes or apply for loans due to their poor credit score, and many fail to see how it can affect them in the future.

Vic @ Business TipsOctober 14, 2011 at 8:43 pm

Building an emergency fund is one feat that can test our attitude and habits in personal finance. If we can’t successfully build our emergency fund, we might fail in the other financial tasks that we should accomplish. It takes self-control and diligence to do that.